ahobbs (34.11)

Mark Hulbert Interview on Sound Investing (3/12/10)

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Mark Hulbert is the founder and editor of the Hulbert Financial Digest, which has tracked financial newsletters since 1980. He writes for Marketwatch.com and the New York Times. He recently appeared on Sound Investing, hosted by Paul Merriman, and there are a couple of gems from the interview that I thought I’d share. You can download the entire interview here.

Paul Merriman: … I looked at – now, by the way this is my definition of smart people – but there are a number of people who have newsletters, that when I hear them speak – Mark Skousen, Richard Young, Dan Weiner, Eric Kobren, Richard Band – these are very, very smart people, and I see the smart organizations – like the S&P organization, the ValuLine, the Morningstar – these are all very smart people, or companies with lots of smart people on the staff; I cannot find any evidence that all of that genius – and that’s not tongue-in-cheek, these are smart people – I can’t find the evidence that they are in fact helping people make more money.

Mark Hulbert: Well, that’s right, and, you know, this is yet another, I think, tried and true lesson to draw from all of this; and it’s something that I’ve definitely come to after the 30 years of doing what I do now, is that shear intelligence is not the determining factor – it’s neither necessary nor sufficient to beat the market. And, of course, the classic example is Long Term Capital Management, which had two Nobel Lariats on its staff and still went bankrupt. So, we see this, I’m afraid, often enough. But, I would say that the lesson to learn – and I know we’ve talked about this in the past – is that the far greater determinant of doing well over time is not having the perfect system or having the highest IQ, but rather having a decent system – and there are lots of decent, not perfect is the case where the perfect is the enemy of the good – you pick a good system, and then you stick with it with discipline. So, that being a far greater determinant of long term success than thinking that you’ve figured out the key that’s going to unlock the mystery of the market.

You know, interestingly enough, there are psychological studies of Wall Street, which, as far as I can read them – I trust my wife who is a clinical psychologist, she tells me this – but PHDs do not have any better track record on Wall Street than do High School graduates. So, we need to give up this notion that somehow, if we study it a little more, or research it a little more, or run another econometric analysis on the statistical software, we’re going to find out something that a million PHDs who are working full time on Wall Street haven’t already figured out, looking at the same data – it’s just not going to happen; and instead say, OK, let’s pick a decent system and go with it, and do it through thick-and-thin; and if you don’t think you have the stomach to do it through thick-and-thin, pick another system, find one that you can live with, and then live with it. And then probably go off and do something else with your life, because it doesn’t require, you know, constant attention every day, every minute, much less every week, even probably every month – it’s something that is just not required.

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The problem with buy-and-hold is not that the arguments are not, statistically, not overwhelming on their behalf, but rather it requires a level of discipline that most people don’t have. At the bottom of a bear market, most people who have previously claimed to be buy-and-hold find it extremely difficult to keep their nose to the grindstone. And so, if indeed, you end up losing faith at the bottom then throw in the towel, you’re worse off than if you had gone with a statistically inferior strategy, but one that you found that you could actually live with.